Profits up but uncertain times ahead for Diageo

Diageo delivered a 6% growth in operating profit in the six months to Dec 31, but has warned of tougher times ahead.

Diageo delivered a 6% growth in operating profit in the six months to Dec 31, but has warned of tougher times ahead.

Operating profit was £1.6 billion for the period on net sales of just over £5 billion, a rise of 3%.

Chief executive Paul Walsh said the company was taking action to deal with the global downturn, with a restructuring programme aimed at making savings worth £100 million.

"Current economic trends indicate that consumer confidence will reduce further and the outlook for the second half is more difficult to predict," he said.

"We will be yet more agile in our response to changing consumer demand and we will continue to invest behind our business while achieving efficiencies across the regions, particularly in marketing spend where we are seeing strong media rate deflation."

The restructuring will "ensure that Diageo emerges from this challenging time with improved routes to market, even stronger brand positions and enhanced financial strength", Walsh said.

Volume sales in North America were ahead by 2%, with net sales up 4%.

Europe was hardest hit, with a 5% drop in volumes, net sales down 3% and operating profit down 4%.

Diageo said the European performance was driven by the weakening of the Spanish market, where sales decline by 18% on weaker consumer demand and reduced wholesale stockholding.

The performance in Africa was "very strong" with Guinness sales up by 25%.